Ortiz is chairman of Managua-based Grupo Promerica and in his two decades running the business has expanded it to nine countries in Central America and the Caribbean.

Source: Grupo Promerica

Flanked by compatriots in linen guayabera shirts, Camilo Atala puffed on a Rocky Patel cigar and soaked in the Caribbean breeze at the Indura Beach & Golf Resort in northern Honduras.

The group was gathered to discuss child migration while Atala, who co-owns the resort, finalized a deal to buy some of Citigroup Inc.’s assets in Nicaragua. Atala had bought Citigroup’s Honduran operations a year earlier, a move that helped turn his Grupo Financiero Ficohsa into the biggest financial conglomerate in Honduras.

Across the border in Nicaragua, Ramiro Ortiz Mayorga was eyeing other Citigroup assets in the region, following his purchase of Ecuador’s Banco de la Produccion SA in 2013. The acquisitions by both bankers have helped create two of the biggest financial conglomerates in Central America.

“We believe that local banks have an important role in economic development in the country,” Atala, 52, said in a February interview. “That’s nothing against the foreign banks. We are an active player in the growth process.”

Banking has made both men billionaires, according to the Bloomberg Billionaires Index. With a $1.4 billion net worth that’s mostly derived from his family’s majority stake in Tegucigalpa-based Grupo Financeiro Ficohsa, Atala is the wealthiest banker in Central America. Ortiz, who was born in 1947, has a $1.3 billion fortune, most of which comes from his majority stake in Nicaraguan lender Grupo Promerica.

Neither has appeared on an international wealth ranking.

Caribbean Expansion

Ortiz began building his conglomerate 24 years ago after he left the business now known as BAC Credomatic, which was sold by fellow Nicaraguan billionaire Carlos Pellas in 2010.

In his two decades running Grupo Promerica, Ortiz has expanded it to nine countries in Central America and the Caribbean with $11 billion in assets and a book value of $1 billion. He also maintains a stake in El Nuevo Diario, after bailing out the newspaper in 2011, and has interests in real estate and agriculture.

Atala’s business reaches from Guatemala to Panama and has $4.2 billion in assets. The Atalas also share control of retailer Colonia with the Faraj family and own real estate developer Proyectos & Servicios Inmobiliarios.

Poverty, Violence

After a coup in 2009, Atala headed a local business council that lobbied against the return of ousted Honduran President Manuel Zelaya. Poverty and violence spiked in one of Latin America’s youngest nations following the coup.

The rise in poverty and murder rates in the country have led to an exodus. Honduran child immigrants trying to enter the U.S. almost tripled last year to 18,244, making it the country of origin with the highest number of minors entering the U.S. illegally, according to U.S. Customs and Border Protection.

Atala, a former investment minister, has had some outside help in building his fortune. The World Bank’s International Finance Corp. made a $70 million investment in 2011 that it said would create jobs by expanding access to credit for small businesses.

“Camilo was smart to sell shares to the World Bank,” said Jaime Rosenthal, a fellow Honduran who heads Grupo Continental. “Ficohsa is now growing in credit cards, which is one of the most profitable segments of financial markets in Honduras.”

Policy Failure

The IFC scrutinized Ficohsa’s lending practices in an August 2014 ombudsman’s report that found the institution didn’t fully understand the bank’s risky operating environment and clients. Those clients include Corporacion Dinant, an African palm oil company linked to drug trafficking that was accused of using violence in forced land evictions of farmers.

Dinant denies any wrongdoing. Spokesman Roger Pineda said in an e-mailed response that the company is cooperating with investigators and has taken away its security staff’s weapons in a bid to stabilize the situation.

The IFC has since said it failed in implementing its own social and environmental policies. Ficohsa says it’s working to improve its environmental and social risk-mitigation policies.

At the Indura resort, Atala hosted Guatemalan and Honduran heads of state and a U.S. State Department envoy in his role as Vice-President of the Latin American Business Council International. They discussed plans for a $1 billion annual U.S. aid package to fight the causes of child migration.

Child Migration

Honduras will add thousands of police under the program and, along with Guatemala and El Salvador, expand centers for at-risk youth in crime-ridden neighborhoods. Atala, who was a minister of investment from 2002 to 2006 under President Ricardo Maduro, said the initiative will add to the economy’s momentum by boosting investment.

“The economy is growing about 3 percent, but we need to be growing more like 5 percent,” he said. “We see opportunity. To grow like that, we need to be investing more.”

The International Monetary Fund says Honduras’s growth will accelerate to 3.3 percent in 2015 from 3.1 percent in 2014, with inflation slowing. Its poverty rate fell to 64.5 percent in 2013, the first drop since 2009. The homicide rate has eased since it was the world’s highest in 2012.

The family’s charity also is involved, donating to programs that support education. Fundacion Ficohsa has helped to reduce pre-school dropout rates, and is planning a professional financial education center.

Ortiz’s family foundation funds a breast cancer hospital in the billionaire’s hometown of Leon and owns Central America’s biggest modern art collection, part of which he has on display in Leon.

‘Serious People’

Ortiz is now looking to acquire some of Citigroup’s Central American assets, according to two people familiar with the matter who asked not to be identified because they weren’t authorized to speak on the matter. He said he’s open to acquisitions and declined to comment further on the talks.

Citigroup, based in New York, has been selling overseas assets as it looks to restructure following the financial crisis. Ficohsa’s purchase of Citigroup’s assets in Nicaragua is still awaiting regulatory approval.

Both billionaires said they’ve been refusing suitors who want to buy their banks, declining to name them.

“There have been proposals from very serious people, but I’ve never had the intention to sell,” Ortiz said in a March 26 phone interview. “We’re staying in the struggle.”

Berta Cáceres

Since the 2009 coup, Honduras has witnessed an explosive growth in environmentally destructive megaprojects that would displace indigenous communities. Almost 30 percent of the country’s land was earmarked for mining concessions, creating a demand for cheap energy to power future mining operations. To meet this need, the government approved hundreds of dam projects around the country, privatizing rivers, land, and uprooting communities.

Among them was the Agua Zarca Dam, a joint project of Honduran company Desarrollos Energéticos SA (DESA) and Chinese state-owned Sinohydro, the world’s largest dam developer. Agua Zarca, slated for construction on the sacred Gualcarque River, was pushed through without consulting the indigenous Lenca people—a violation of international treaties governing indigenous peoples’ rights. The dam would cut off the supply of water, food and medicine for hundreds of Lenca people and violate their right to sustainably manage and live off their land.

Berta Cáceres, a Lenca woman, grew up during the violence that swept through Central America in the 1980s. Her mother, a midwife and social activist, took in and cared for refugees from El Salvador, teaching her young children the value of standing up for disenfranchised people.

In 2006, community members from Rio Blanco came to COPINH asking for help. They had witnessed an influx of machinery and construction equipment coming into their town. They had no idea what the construction was for or who was behind the project. What they knew was that an aggression against the river—a place of spiritual importance to the Lenca people—was an act against the community, its free will, and its autonomy.

With mandates from local community members at every step of the way, Cáceres began mounting a campaign against the Agua Zarca Dam. She filed complaints with government authorities, bringing along community representatives on trips to Tegucigalpa. She organized a local assembly where community members formally voted against the dam, and led a protest where people peacefully demanded their rightful say in the project.

The campaign also reached out to the international community, bringing the case to the Inter-American Human Rights Commission and lodging appeals against the project’s funders such as the International Finance Corporation (IFC), the private sector arm of the World Bank.

Ignoring these appeals, the national government and local mayors forged ahead. They doctored minutes from a community meeting to paint a false picture of unanimous approval for the dam, and offered cash to local people in exchange for their signature on documents declaring their support.

In April 2013, Cáceres organized a road blockade to prevent DESA’s access to the dam site. Using a carefully organized system of alerts to keep everyone in the loop, the Lenca people maintained a heavy but peaceful presence, rotating out friends and family members for weeks at a time. For well over a year, the blockade withstood multiple eviction attempts and violent attacks from militarized security contractors and the Honduran armed forces.

Honduras’ violent climate is well known to many, but few understand that environmental and human rights activists are its victims. Tomas Garcia, a community leader from Rio Blanco, was shot and killed during a peaceful protest at the dam office. Others have been attacked with machetes, discredited, detained, and tortured. None of the perpetrators have been brought to justice.

Against these odds, Cáceres and the Lenca community’s efforts successfully kept construction equipment out of the proposed dam site. In late 2013, Sinohydro terminated its contract with DESA, publicly citing ongoing community resistance and outrage following Tomas’ death. Agua Zarca suffered another blow when the IFC withdrew its funding, citing concerns about human rights violations. To date, construction on the project has effectively come to a halt.

What haven’t stopped are death threats to Cáceres. Her murder would not surprise her colleagues, who keep a eulogy—but hope to never have to use it. Despite these risks, she maintains a public presence in order to continue her work. In a country with some of the highest murder rates in the world, Cáceres hopes the victory in Agua Zarca will bring hope to activists fighting irresponsible development in Honduras and throughout Latin America.

In Honduras, the World Bank has funded a known coup-backer, murderer, and narcotrafficker, while escalating a decades-long land conflict and undermining local food security.

In November 2009, just months after the military coup ousting President Manuel Zelaya shook Honduras, the World Bank delivered a US$15 million loan to the Honduran corporation Grupo Dinant, despite obvious human rights concerns.

The US$15 million, paid through the World Bank’s private sector lending arm the International Financial Corporation (IFC), was the first installment of a US$30 million loan to be paid to to the palm oil processing and snack food company owned by Honduras’ largest landowner Miguel Facusse.

Though the World Bank approved the US$30 million loan prior to the coup in 2008, the first payment was made in the post-coup context of political repression, widespread human rights abuses, popular protest in Honduras, and regional condemnation of the coup regime. Honduras had been suspended from the Organization of American States (OAS), with the regional body encouraging both member states and international organizations to “review their relations” with Honduras in light of the coup. The World Bank did not take heed.

What’s more, Grupo Dinant’s founder and owner Miguel Facusse – palm oil magnate, member of the Honduran oligarchy, suspected narcotrafficker, and one of the wealthiest men in the country – was a key backer of the coup who has long been implicated in violent land conflicts in the Northern Aguan Valley region where Dinant’s African oil palm plantations and processing facilities are located.

“In Honduras, the main problem is a complete lack of democracy and violent repression of all those who oppose the pillaging of the country’s resources by a handful of elites, such as Miguel Facussé.”

Nevertheless, in spite of the precarious and dangerous political situation in Honduras and dubious track record of Facusse and Dinant, the World Bank plowed ahead with the hefty loan, financing death and dispossession in the Aguan as a result.

As Annie Bird of Rights and Ecology explains, “If the Bank staff had done certain mandated due diligence and database searches they would have found news reporting implicating Dinant’s owner and the Dinant company in the use of its land for drug trafficking, misuse of political influence, murder, and environmental crimes.”

Instead, the World Bank has blood on its hands from the more than 120 murders in the Aguan region related to the land disputes in which Dinant is implicated.

According to Tanya Kerssen, Research Coordinator for Food First/Institute for Food and Development Policy, this follows the typical World Bank practice of promoting capitalism within business-friendly but highly repressive political environments.

“In Honduras, the main problem is a complete lack of democracy and violent repression of all those who oppose the pillaging of the country’s resources by a handful of elites, such as Miguel Facusse,” she said. “If the Bank were truly to engage in meaningful transformation, it would simply not operate in countries with such a savage disregard for democracy, instead of propping up corrupt governments that operate with impunity.”

International human rights organizations and Honduran social movements have pressured for the loan to be cancelled, calling attention to the despicable conduct of Dinant and the World Bank’s failure to even comply to its own rules. However, despite the evidence of a brutal human rights situation and the negative impact of the loan in the Aguan, the World Bank initially denied accusations and was slow to respond to international backlash.

Under ongoing pressure and a scathing internal audit conducted by the Bank’s Compliance Advisor Ombudsman (CAO) made public in 2014, the second US$15 million installment of the loan has been suspended as the World Bank undertakes further review of Dinant.

As Haydee Saravia, Secretary General of the Coordinator of Popular Organizations of Aguan (COPA), explained, local campesino communities are clear on their demands with respect to Dinant. “They are demanding that the World Bank not continue financing business owners like Miguel Facusse, who has caused a lot of pain and death for campesino families,” she said, noting movements’ long-held key demand for land access and as well as the demand for immediate demilitarization of the region.

In the meantime, Dinant continues “business as usual,” which is not just the business of producing and processing palm oil, but also of repressing campesinos.

Campesino Resistance: From Land Grabs to Post Coup Repression

The Aguan Valley has a decades-long history of agrarian conflict, which has intensified since the coup. In the 1970s, agrarian reform legislation – won through the struggles of powerful campesino organizations – distributed land in the Aguan to landless workers, establishing the first peasant cooperatives and expanding the agricultural frontier. It was also through agrarian reform that African oil palm was first promoted in the region, sewing literal and metaphorical seeds of today’s conflicts.

In the early 1990s, a political turn to neoliberalism aided by an IMF structural adjustment package reversed agrarian reform and shifted the agrarian paradigm from land redistribution to marketization. The new Agricultural Modernization Law enabled a wave of manipulative land grabs resulting in a gross re-concentration of land throughout the country, but especially in the Aguán.

One of the principal beneficiaries of this neoliberal land grab was Facusse. While campesino cooperatives were systematically undermined, manipulated, threatened, and otherwise pressured into selling their land titles, large landowners swept up huge swathes to build agribusiness empires. In some cases, campesino cooperatives were outright robbed of their land, and many of those conflicts remain unresolved.

Prior to the coup, campesino mobilization and direct action successfully pressured former President Zelaya to launch a commission to investigate land conflicts, with the potential of putting agrarian reform back on the political agenda. However, Zelaya’s ouster meant the promise of settling land disputes was never realized – a major setback for campesino movements, while large landowners like Facussé benefited immensely.

As Bird explained, “The convoking of that commission (to investigate land disputes) was a huge threat to the Dinant corporation because they were looking into the validity of land holdings, and this could have potentially led to annulling illegal title. They clearly benefited by the coup in assuring that their land holdings were not going to be questions and they would retain control.”

And in addition to direct political benefits, private interests that supported and enabled the coup, like Dinant, afterward benefited economically from the World Bank, Bird added.

The fertile land of Aguan River valley is highly coveted. While expanding African oil palm plantations of wealthy landowners stretch far and wide, campesino communities wage a resilient land reclamation movement to secure access to land, promote food sovereignty, and resist the repression of large landowners and the hostile post-coup government. Facing landowner and state enabled violence, the human rights situation is dire.

The human rights crisis has deepened in the Aguán since the coup, furthered by widespread political corruption, heavy militarization of the region that functions to protect private interests by criminalizing campesinos, and a state culture of impunity.

COPA’s Saravia explained that while the agrarian conflict in the Aguán has deep historical roots, the situation has intensified. “Since the coup in 2009, the violation of human rights is much greater,” she said. “There is a heavy militarization campaign that began in 2010 when they militarized the region. Assassinations started, violent evictions started in the African palm farms, and there is criminalization, kidnappings, death threats, illegal detentions – a series of violations of the rights of campesinos.”

Since the coup, human rights organizations such as Rights Action have documented over 120 murders in the Aguan, as well as countless other cases of human rights violations such as those mentioned by Saravia.

In addition to funding physical and deadly violence against campesinos, the World Bank loan promotes forced displacement and landlessness of campesinos through backing evictions carried out by and at the behest of Facussé’s Dinant.

Rights and Ecology’s Bird, who has rigorously documented human rights abuses in the Aguan, outlined the situation in the Aguan and the central role of Dinant in violence against campesinos.

“In the Bajo Aguan there are groups of death squads or assassins that operate with impunity and with the collaboration of state security forces,” she said. “There’s widespread denouncements from many different sectors and witnesses that implicate both the Dinant company and its security forces directly in killings, kidnappings, and other abuses, but also very frequently the abuses are happening through joint operations with state security forces, the military and the police.”

The bankruptcy of Honduran democracy, U.S.-backed militarization, and World Bank investment in a company with a history of violence, manipulation, corruption, and drug trafficking, make for a perfect storm of alarming human rights violations and ongoing impediments to democracy in the Aguan.

World Bank Capitalism: Making a Killing from Human Rights Abuses

Unfortunately, both the World Bank and the Honduran government have failed to respond seriously to the grave human rights situation in the Aguan, and instead continue to enabled it.

“In the Bajo Aguan there are groups of death squads or assassins that operate with impunity and with the collaboration of state security forces.”

According to Saravia, the World Bank has taken nominal steps toward investigating claims against Dinant, but no tangible outcomes have come of the process. “The World Bank has sent a negotiator to see if there have indeed been violations by Dinant corporation, and they have given a series of recommendations for Dinant, such as that security guards in the farms be disarmed,” she explained. “But the truth is that the security guards are still in the farms and the military are also still in the farms, guarding the property of Dinant corporation and other business owners.”

According to Bird, the issue is structural, not just in terms of structural issues in Honduran politics and economy, but the World Bank itself.

“There’s a widespread problem that World Bank funding around the world does not take into account human rights issues, and has consistently argued that human rights is somehow a political issue as opposed to a governance issue, and it has argued that the world bank can’t be involved in politics,” said Bird. “Whereas advocates for human rights are clear that a nation’s compliance with human rights standards is a governance issue as much as fiscal policy is and has a very direct implication on the development outcomes of funds.”

This is why internationally, organizations are pressuring the World Bank not just to de-fund Dinant, but to give central priority to considering the danger of adverse effects when approving loans to ensure financing doesn’t back human rights violations like in Honduras. Unfortunately, devastating outcomes of World Bank-funded projects are all too common.

“It’s not just Dinant, this is a very grave case, but there are dozens of other loans just in the region, just in Central America, which cause conflict and cause violence,” explained Bird. “There are governance issues surrounding the loan and the kinds of activities that the loans are funding – like hydroelectric dams, palm oil and sugarcane, which compete for land and force people off of their land and pollute their livelihood.”

As Kerssen points out, the negative consequences of World Bank funding aren’t accidental, but fundamentally related to the kinds of projects and investment the institution prioritizes. The World Bank’s stated mandate is to combat poverty, but in reality it is in the business of promoting capitalism in ways that in fact exacerbate poverty and inequality, destroy the environment, and forcibly displace communities.

The International Finance Corporation (IFC) has little accountability for billions of dollars’ worth of investments into banks, hedge funds and other financial intermediaries, resulting in proBretton Woods Projectjects that are causing human rights abuses around the world.

The claim is part of a new report by Oxfam International, the Bretton Woods Project and other NGOs, released a week before the World Bank spring meetings. “The Suffering of Others” says that the IFC (the World Bank’s private sector lending arm) is failing to perform due diligence and to identify or effectively manage risk in many of its investments in third-party lenders. “The painful truth is that the IFC does not know where much of its money under this new model is ending up or even whether it’s helping or harming,” said Nicolas Mombrial, head of Oxfam International’s Washington DC office.

“We describe some shocking abuses in projects originally born of IFC investments to third parties across Asia, Africa and Latin America, including deaths, repression, land-grabs and violence. Because public information from the IFC is so meagre – whether by design or – we fear such projects are just the tip of the iceberg,” Mombrial said.
The IFC has bet heavily on this new “hands off” strategy of development lending, investing $36 billion via financial intermediaries in just four years till 2013. This is 50% more than the entire World Bank Group spent directly on health and three times more than it spent on education in the same period. This model now makes up 62% of the IFC’s investment portfolio and some of the world’s most influential lenders are beginning to copy it.

Developing countries need decent financial services and the private sector has a role in plugging the existing financial gap. “The IFC can help attract private finance to poor countries but currently the way it is applying its environmental and social safeguards on these new investments into financial intermediaries is haphazard at best, lip service at worst,” he said. Even more worrying, because the IFC is increasing its exposure in fragile states by 50 per cent, is the potential for calamitous results if done under this risky new model in its current form. “IFC’s lending to third parties is now so huge, its portfolio so shrouded in darkness and riddled with abuse, that it needs to completely overhaul this lending model,” said Natalie Bugalski, legal director of Inclusive Development International, a co-author of the report.

Another worrying discovery is that of the 49 investments the IFC made to financial intermediaries since 2012 that it did classify as “high risk”, is has only publicly disclosed sub projects in three of these deals. “That means there is no public information about where 94% of the IFC’s ‘high risk’ intermediary investments have actually ended up. Until the World Bank Group proves that these deals have a legitimate development impact and are doing no harm, the IFC must stop investing in high-risk third parties,” said Bugalski.

For the first time, the report gathers together previously published studies of projects that have caused conflict and suffering for local people, including rubber, sugarcane and palm oil plantations in Cambodia, Laos and Honduras, a dam in Guatemala and a power plant in India. The report reveals other risky projects including more power plants and dams in West Papua, Laos and Guatemala, a mine in Vietnam, and sugar plantations in Guatemala. “We want the World Bank to know that its money is being used to destroy our way of life. Nowadays we are surrounded by companies. They have taken our community lands and forests. Soon we fear there will be no more land left for us at all and we will lose our identity. Does the World Bank think this is development?” a representative of one of the affected communities, is quoted saying in the report.

The report says the IFC must reform its lending to financial intermediaries including by:
• Making fewer and better investments that stick to its own social and environmental
standards;
• Stopping investments in high risk new projects via financial intermediaries until it has
adequate systems to manage and mitigate that risk;
• Publicly disclosing its clients and sub-projects on all of its investments done through
financial intermediaries;
• Getting projects assessed by independent parties and suspending clients if they have
breached the safeguards.

The report says the IFC has begun to reform its financial intermediary lending in response to recent criticisms, including from its own watchdog, Board, civil society groups and affected communities. These steps include streamlining its risk assessment, forming a new committee to assess high-risk projects, and pledging to give environmental and social risks the same weight as financial or credit risks. However the report says fundamental flaws remain and more needs to be done urgently.

Oxfam is working with other NGOs to hold the IFC to account through this report, including Inclusive Development International, Global Witness, Bretton Woods Project, Madre Selva, Nisgua, The Research Collective – PSA, the Bank Information Center, Urgewald and Equitable Cambodia.

WASHINGTON (Reuters) – The World Bank’s private sector arm may be doing more harm than good when it invests in private equity firms, banks and other financial intermediaries, global development group Oxfam said in a report on Wednesday.

In one project indirectly sponsored by the bank’s International Finance Corporation (IFC), 164 villagers in Cambodia lost their plots and thousands of others suffered when a Vietnamese company expanded plantations to their land.

In another high-profile case, the IFC’s own watchdog criticized a loan to the largest bank in Honduras, whose clients included a palm oil company tied to land disputes and killings.

“By channelling funds through third parties, the IFC loses control of how the money is eventually spent,” Oxfam said. “It has little proof of positive development outcomes.”

The IFC directed about 63 percent of its $17 billion (11.4 billion pounds) of commitments in the last fiscal year to financial intermediaries in developing countries, to leverage its money to reduce poverty and boost economic growth.

Oxfam said more investments are likely to run into problems as the World Bank takes on riskier projects, including infrastructure and lending to conflict-affected states.

The IFC said it takes Oxfam’s findings “very seriously” and was already working to address the cases, many of which occurred before 2012, when the institution revised its social and environmental standards.

Since then, the IFC said, it has expanded its staff of specialists on safeguards, visited risky projects more often and audited financial clients every year to ensure they have good systems for managing environmental and social risks.

MISSING RISK

But Oxfam said the reforms have been insufficient, because the IFC still misses major risks or does not share enough information about investments.

For example, in 2012 the IFC invested $15 million in a New York-based private equity fund that in turn invested in the Santa Rita hydroelectric plant in Guatemala. But the investment was not classified as “high risk,” which would have prompted greater scrutiny.

According to Oxfam, the IFC only switched the project’s risk category in October, when communities affected by the dam complained about violence and displacement and lodged a formal complaint with the IFC’s watchdog.

The IFC said the cases highlighted by Oxfam show the institution must constantly work to improve its approach to lending and make “course corrections” as it goes along.

“We are part of the solution, but we know that we can always do better,” it said.

Summary

Bank facilitating opening up developing country markets to extractive industries

Bank accused of funding activities through trust funds exempt from social and environmental standards

Despite civil society criticism of World Bank-supported large-scale mining activities, the Bank is still involved in controversial extractives projects (see Observer Summer 2014, Bulletin Dec 2013). Local and international campaigners argue that, through technical assistance, the Bank facilitates the opening up of countries’ extractive industries to transnational companies over supporting domestic industry; and doing so without providing governments with the tools to adequately protect marginalised communities against harmful social and environmental consequences of projects originating from Bank technical support.

Haiti: CSOs concerned by Bank’s role

Since 2013 the Bank has provided technical assistance to the Haitian government in drafting new mining laws intended to increase foreign investment in the sector under the Extractive Industries Technical Advisory Facility (see Bulletin Dec 2013). In March, a letter to Bank president Jim Yong Kim, signed by 92 civil society organisations and individuals, expressed deep concern that the Bank “is helping to develop Haiti’s mining sector, an inherently high-risk industry, without applying any social or environmental standards to ensure transparency and meaningful public participation.”

The letter follows an appeal filed in January to the Bank’s accountability mechanism, the Inspection Panel (IP), over concerns that the new legislation had been drafted without public consultation, in violation of its own policies. The request by the Haiti Mining Justice Collective and mining-affected communities argued that “mining exploitation has never contributed to the development of Haiti,” and express concern about the “exclusion of Haitian people from the law reform process, particularly when contrasted with the reported regular participation of the private sector.”

While acknowledging the concerns as “serious and legitimate”, the IP rejected the appeal in February because the Bank support is financed through a Bank-Executed Trust Fund (BETF) “to which Bank operational policies and procedures … including the safeguard policies, are not applicable”, rather than a Recipient-Executed Trust Fund (RETF), where the Bank’s policies apply (see Observer Spring 2015). The IP noted that the Bank’s “decision to execute a complex TA [technical assistance] such as this one under a BETF as opposed to a RETF … does not seem to be proportional to the level of environmental and social risks involved in the TA.”

The March letter demanded that a policy review be “undertaken with a view to closing the current loopholes in World Bank policies, to ensure that the application of social and environmental standards is mandatory and never left to the discretion of the Bank’s project teams or dependent on the particularities of the funding vehicle.”

Honduras: mining agreement challenged

The Bank, alongside the Canadian International Development Agency is also facilitating the expansion of the mining sector in Honduras. It signed an agreement in February with the government that will double mining exploration in the country, a move projected to increase private profits from $300 million to $5 billion annually.

The Honduran National Coalition of Environmental Networks and Organisations (CONROA) demanded that the Bank prioritise investment in local coffee farmers over mining companies. They also demanded that community consultation be made binding before any mining activities take place in an area. A public declaration released at the time of the agreement stated: “Far from protecting mining-affected communities, the mining law puts them at a disadvantage compared to the freedom with which companies operate … [the Bank] support[s] an industry that has created social conflict as a result of how mining competes for space, water and territorial control. … Mining has not contributed to development in any country, given that the income and few jobs that this activity generates do not compensate for the environmental and social impacts.”

Armenia: second mining case filed

In July 2014, the Compliance Advisor Ombudsman (CAO), the accountability mechanism of the International Finance Corporation (IFC, the Bank’s private sector arm), received a second complaint regarding the IFC’s investment in the Amulsar gold mine in Armenia operated by UK Channel Islands-based Lydian International (see Observer Summer 2014). IFC is a 7.9 per cent shareholder in Lydian and has invested over $16 million in stages since 2007.

According to the IFC, the project is expected to move into the development and construction stage with first gold production expected in early 2017. It is classified as Category B, meaning it is “expected to have limited adverse social and/or environmental impacts that can be readily addressed through mitigation measures.” The complaint, filed by 148 local residents, includes allegations of lack of information about land acquisition and resettlement plans; potential cyanide contamination; dust pollution affecting agriculture; and insufficient community engagement. The community demanded “that the IFC stops sponsoring this felonious operation, since it has destructive effects on the population of Gndevaz. We demand that our opinion be considered and our rights not be violated.”

In early March the parties agreed to participate in a CAO dispute resolution process, seeking a collaborative solution. The first complaint moved to the CAO compliance function in December 2014, the purpose of which is to review the IFC’s environmental and social due diligence.

This story was reported and written with Sasha Chavkin and Mike Hudson from the International Consortium of Investigative Journalists.

The World Bank, created to fight poverty, has admitted that it’s failed to follow its own rules for protecting the poor people swept aside by dams, roads and other big projects it bankrolls.

This conclusion, announced by the bank on Wednesday, amounts to a reversal of its previous efforts to downplay concerns raised by human rights activists and others working on behalf of the dispossessed — people evicted from their land, sometimes in violent ways, to make way for World Bank-financed initiatives.

It comes days after the International Consortium of Investigative Journalists and The Huffington Post informed bank officials that the news outlets had found “systemic gaps” in the bank’s protections for people who lose homes or jobs because of development projects.

The World Bank, which is controlled by the United States and other member countries, had failed to respond to the news organizations’ repeated requests over the past several weeks for an interview with Jim Yong Kim, the president of the World Bank Group, the parent institution. The news outlets have been pressing the bank for months for answers to questions about how well it enforces its own “social and environmental safeguards.”

The bank said in a news release that its conclusions followed internal audits conducted over the past two years.

“We took a hard look at ourselves on resettlement and what we found caused me deep concern,” Kim said in a statement.

Under its current rules for safeguards, the World Bank and its borrowers are supposed to make sure that people physically or economically displaced by a project are identified, consulted and provided new homes, jobs or other help that restores them to living conditions that are equal to or better than before.

The World Bank said that it did not know how many people its projects had uprooted, and that it did not do enough to keep track of projects that push communities off their land or cost people their livelihoods. ICIJ, HuffPost and other media partners that have examined the issue found that projects backed by the World Bank have displaced millions of people over the last decade.

The World Bank also said it is taking steps to fix the problems with its oversight of projects that cause “involuntary resettlement.” The bank will increase the number of staffers who oversee social and environmental protections, and will build a new database to track people displaced by bank projects, the lender said in a press release.

The bank’s announcement comes in the midst of a multiyear revision of its safeguard policies, including its policy on resettlement. The bank’s guidelines set a global standard for social and environmental protections in development aid that is often followed by regional development banks and private lenders worldwide.

An initial draft of the revision, released in July 2014, was widely panned by human rights experts and civil society groups as a dramatic rollback of the bank’s standards. Critics said the proposed rules would reduce borrowers’ obligations to plan in advance for displacement and other harms to local people and the environment, and instead allow borrowers to ignore problems until the harm is already done.

Ted Downing, the president of the International Network on Displacement and Resettlement, said the bank’s statement was meant to divert attention from the larger issues at stake.

“The purpose is to distract people,” Downing said Thursday. “The big question is which policy all this staff that are being rearranged are enforcing.”

Stephanie Fried, executive director of the Ulu Foundation, an environmental group that advocates for forest communities, said the bank’s promise to do a better job of enforcing its safeguards won’t do much good if its safeguards are going to be “radically diluted.”

A second draft of the safeguards revision is expected to be released later this year.

A bank spokesman denied that the bank’s release of its action plan on Wednesday had anything to do with the questions being asked by media organizations. The bank said that its action plan on resettlement was meant to address the urgent issues identified in its reviews without the additional delay of waiting for a new policy.

“We’re not going to wait until that process is through to implement this action plan,” the spokesman said. “This work needs to happen now.”

In the months prior to the release of the action plan, the bank had been working to distance itself from abuses carried out by the governments it backs.

In Ethiopia, ICIJ revealed in January, the bank’s internal Inspection Panel found that the World Bank had repeatedly violated its own rules in failing to acknowledge the link between a bank-funded health and education initiative and violent evictions targeting indigenous peoples.

The Inspection Panel also found that the World Bank violated its safeguards policies in Kenya by failing to protect indigenous people who said that a bank-funded conservation effort had been used to force them from their ancestral forests.

In both Kenya and Ethiopia, the World Bank declined to insist that its client governments compensate the people who lost their homes.

Human rights activists who have criticized the bank for its failure to live up to its own standards for years said they were taken by surprise by the sudden release of the audits, and the bank’s avowals of reform.

Natalie Fields, the executive director of the Accountability Counsel, a legal group that represents indigenous peoples in disputes with the World Bank and IFC, said the plan to address the problems seemed “slapped together.”

The reforms announced Wednesday don’t include measures to hold bank staff accountable for not doing a better job of identifying and helping displaced people, she said.

“It’s a positive that the bank is acknowledging problems, but in many respects this is the same old story,” Fields said. “They have come up with their own plan for how to address the issues, without consulting people who have spent years of their lives on resettlement, and without consulting with the communities themselves.”

A Corporation Dinant worker repairs an irrigation system for oil palms in the Bajo Aguan region of Honduras’ northern coast, August 26, 2011. The violence over land titles in Bajo Aguan is the most volatile example of the social divide that burst into view a few years ago. (Photo: Edgard Garrido Carrera / The New York Times)

As one of the fastest growing global commodities, palm oil has recently earned a reputation as a major contributor to tropical deforestation and, therefore, to climate change as well.

About 50 million metric tons of palm oil is produced per year – more than double the amount produced a decade ago – and this growth appears likely to continue for the foreseeable future. Because oil palm trees, native to West Africa, require the same conditions as tropical rainforests, nearly every drop of palm oil that hits the global market comes at the expense of natural forests that have been, or will be, burned, bulldozed and replaced with plantations.

Owned by Miguel Facussé, one of the wealthiest men in Honduras, (Grupo) Dinant has been associated with the killings of over 100 peasant farmers,

With deforestation garnering headlines due to forests’ crucial role in regulating the climate, global commodity producers, from Nestle and Unilever in Europe, to Cargill in the United States to Wilmar International in Indonesia, are recognizing the need to provide products that are “deforestation-free.” Other corporate-led initiatives like the public-private Tropical Forest Alliance that promises to reduce the deforestation associated with palm oil, soy, beef, paper and pulp, and the recent New York Declaration on Forests signed at the UN Climate Summit in New York, suggest that saving the world’s forests is now squarely on the corporate sustainability agenda.

But what is being left behind is the other significant impact of palm oil and other agro-industrial commodities – namely human rights. Commitments to protect forests and conservation areas can, if well implemented, address environmental concerns by delimiting the areas of land available for conversion to palm oil. But natural resource exploitation is inextricably linked to human exploitation, and such commitments do little to address this.

A case in point is Grupo Dinant, a Honduran palm oil company that declared last month that it has been awarded international environmental certifications for its achievements in environmental management and occupational health and safety. Dinant has also been making overtures toward joining the Roundtable on Sustainable Palm Oil (RSPO), including hosting the RSPO’s 4th Latin American conference in Honduras in 2013. But, Dinant, which produces about 60 percent of the palm oil in Honduras, is at the center of what has been called “the most serious situation in terms of violence against peasants in Central America in the last 15 years.”

Owned by Miguel Facussé, one of the wealthiest men in Honduras, Dinant has been associated with the killings of over 100 peasant farmers, and appears to be involved in a virtual terror campaign to ensure control of a large swath of land in the Lower Aguan Valley near the Caribbean coast of Honduras.

While credible human rights groups like Human Rights Watch denounce the killings and note that “virtually none of the crimes are properly investigated, let alone solved,” Dinant continues to enjoy financing from the World Bank’s International Finance Corporation, support from the United Nations Clean Development Mechanism, and brand relationships with multinational consumer goods companies such as Mazola Oils.

The Aguán Valley and the Introduction of Palm Oil

The Bajo Aguán Valley, one of the most fertile regions in Honduras, has long been a center of agrarian conflict. In her book Grabbing Power: The New Struggles for Land, Food and Democracy in Northern Honduras, researcher Tanya Kerssen reaches back to the 1950s to show how a struggle between farmers’ associations and multinationals Standard Fruit and United Fruit Company set the scene for the land concentration that reigns today. Decades of peasant struggle led to a brief period in the 1970s when the government distributed land to smallholder farmers from other parts of the country, who then formed cooperatives to bring crops to market. The embattled region became briefly known as the “capital of land reform” – but these reforms have long since been rolled back, in part due to the country’s need to pay back its foreign debt.

In a few years in the early ’90s, more than three quarters of the land in the Aguan Valley was re-concentrated into the hands of a few Honduran oligarchs.

In the 1980s, a combination of loans from the InterAmerican Development Bank (IDB) and bilateral aid allowed the Honduran government to construct a road network in the Aguan, as well as three palm oil processing plants and a modern port. Hoping to pay down its large debts to the IDB, the state-controlled mills bought palm from peasant cooperatives at rock-bottom prices, in return promising peasants eventual control over the processing plants. In the early ’90s, an “agrarian modernization law” was passed with support from the World Bank and the US Agency for International Development that again stimulated large land purchases and made the Aguan Valley the national poster child for re-concentration of land.

Land Re-concentration, Rise of Grupo Dinant

Over the next several decades, cooperatives and smallholders were coerced into selling their land to powerful landlords, often through intimidation and manipulation, from bribes of peasant leaders to threats and outright violence – tactics that continue to reign in the region to this day. Peasant farmers in the Aguan again found themselves as day laborers on large plantations, working hard for little pay. In a few years in the early ’90s, more than three-quarters of the land in the Aguan Valley was re-concentrated into the hands of a few Honduran oligarchs. One of these landlords was Miguel Facussé.

Among the wealthiest men in Honduras – and now the richest – Facussé established a series of food commodity businesses, culminating in 2005 with Grupo Dinant. Dinant produces cooking oil, snacks, and other food products, as well as biofuels. To do this, the company took a $30 million loan from the World Bank’s International Finance Corporation and a $7 million loan from the InterAmerican Investment Corporation (IIC). Trade liberalization also enriched Facussé: Both Unilever and Proctor & Gamble gained important footholds in Central America by acquiring distribution networks and brands owned by Facussé. The profits and the status conferred on Dinant through such purchases enabled more land purchases in the Aguan Valley, furthering the concentration of land.

In 2001, farmers in the region organized as the Unified Peasants Movement of the Aguán Valley (MUCA), with the aim of reclaiming their land rights through the courts. With legal routes exhausted, in 2006 they began land occupations. In June 2009, they occupied one of the palm oil processing plants of Exportadora del Atlántico, part of Grupo Dinant, provoking then-President Manuel Zelaya to promise to investigate the land rights issue. However, Zelaya was removed in a coup later that month.

The Killing Years

While violence had long been present in the region, the months following the coup saw a dramatic increase in killings. As of October 2010, a year after the coup, 36 small-scale farmers had been killed. None of these cases were resolved or brought to court, but as a result of the escalating violence and murders, the government militarized the area. During this time, Dinant became implicated in the murder of dozens of peasants.

In 2011, FIAN, an international NGO working for food rights, produced a report on human rights violations in Bajo Aguán, documenting “evidence of the involvement of private security forces hired by Dinant and other companies owned by Miguel Facussé in human rights abuses and, in particular, in the murder of peasants in Bajo Aguán.”

The government was eventually forced to convene both MUCA and the company to negotiate a deal in June 2011. The government agreed to distribute some 30,000 acres to the farmers, including 12,000 acres where oil palm has been planted by Exportadora del Atlántico – not by giving the land back, but by selling it at market prices. The company agreed to the proposal, but later announced it wanted to renegotiate it. In protest, other peasant groups began land occupations, exposing themselves to violent evictions by state security forces.

A 2012 public hearing on the human rights situation in the peasant communities of the lower Aguán concluded that the agrarian conflict there is the “most serious situation in terms of violence against peasants in Central America in the last 15 years.” By April 2013, at least 89 peasant farmers had been killed in the Aguan Valley.

Killings have continued with complete impunity, the region around the plantations has been heavily militarized, and long-standing peasant communities have been violently evicted.

Precise numbers are difficult to verify however; to quote Human Rights Watch, “Honduras is notorious for ineffective investigations.” Former Attorney General Luis Alberto Rubi told the Honduran congress in 2013 that 80 percent of homicides go unpunished; of 73 killings recognized by the government to be linked to land conflicts, seven have been brought to trial, and none has resulted in conviction. Human Rights Watch affirms that government security forces themselves have committed human rights violations including arbitrary detentions and torture.

The Role of International Financiers

In 2008, the International Finance Corporation (IFC) of the World Bank approved a $30 million loan to Dinant, to be delivered in two tranches of $15 million each. When the June 2009 military coup ousted the democratically elected president and violence in the Aguán Valley escalated, the IFC put disbursement on hold, but the first tranche was eventually distributed.

In its assessment of the potential concerns under IFC’s Policy on Social and Environmental Sustainability, the IFC noted that “a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines, design criteria, local regulations and industry certification schemes. Land acquisition is on a willing buyer-willing seller basis, and there is no involuntary displacement of any people.”

This proved to be far from the case, as the IFC could have easily foreseen.

The Inter-American Development Bank approved a loan for $7 million in June 2009, but never signed the agreement with the company and never paid anything out. A spokesman for the IADB said at that time, “In the case of Dinant, there was a significant shift in a number of matters surrounding the project that led us to reconsider. The political turmoil Honduras experienced in 2009 was one of the aspects affecting this decision. Other considerations included . . . a controversy over real estate ownership.”

Following the coup, Dinant became implicated in the murder of dozens of peasants. Killings have continued with complete impunity, the region around the plantations has been heavily militarized, and long-standing peasant communities have been violently evicted.

When FIAN’s 2011 report was brought to the German development bank DEG, the bank confirmed FIAN’s findings and canceled a $20 million loan to Dinant, “with a view to the evolving agrarian conflict in the Bajo Aguán region.” French company EDF Trading also cancelled a contract to buy carbon credits from Dinant, indicating that it was “taking the situation in Honduras very seriously.”

Private security guards outnumber police in Honduras by a ratio of 5 to 1.

By contrast, the World Bank’s International Finance Corporation has been stubbornly defensive about its $30 million relationship with Dinant. IFC claimed in 2008 that: “Dinant understands the importance of having good relationships with their neighboring communities and are quite proactive in this regard.”

In April, 2010, the IFC requested that Dinant hire an international security consultant to assess its security program and to provide training for the company’s security forces. The IFC said that the consultant would “work with Dinant to develop a Corporate Security Policy and Code of Ethics based on the UN Voluntary Principles for Business and Human Rights.”

Given the impunity that reigns in the region, reform of Dinant’s security force would prove to be a challenge. Human Rights Watch investigated 29 killings in the Aguan Valley and reports that 13 of the 29 killings, and one disappearance, suggest the possible involvement of private guards. The same report notes that Honduras has more than 700 registered private security firms, and numerous unregistered firms; the UN working group on the use of mercenaries reports that private security guards outnumber police in Honduras by a ratio of 5 to 1.

In December of 2013, an independent audit by the CAO Ombudsman of the IFC, a semi-independent body charged with overseeing the environmental and social safeguards applied to IFC loans, issued a stinging critique of the IFC for having failed to follow its own requirements.

“According to civil society source,” the CAO investigation states, “there were at least 102 killings of people affiliated with the peasant movement in the Bajo Aguán between January 2010 and May 2013, with specific allegations being made linking 40 of these to Dinant properties, Dinant security guards or its third-party security contractor. Allegations in relation to the killing of at least nine Dinant security personnel by affiliates of the peasant movement have also been made.”

A lucrative agro-industrial crop like palm oil, in a context of entrenched corruption and an authoritarian regime, lends itself to land grabbing and agrarian violence.

Still, the IFC rejected several of the CAO findings. Despite a list of demands sent to the World Bank by 70 civil society groups, the World Bank has yet to withdraw funding from the project. Instead, the IFC put in place an “enhanced action plan,” which requires Dinant to adopt voluntary security protocols and to “engage stakeholders” in order “to better understand the issues currently impacting communities and to bring strategic focus and overall coordination to Dinant’s existing corporate social responsibility programs, such as funding for school teachers, clinics, and conservation programs.” Nothing in the plan considers turning over land to local communities, and there is no mention of sanctions, or loan withdrawal for failure to comply.

The problem is not the crop, but the agro-industrial model; decades ago with Standard Fruit, Honduras was the archetype of the banana republic; today with Dinant it’s an oil palm republic.

The IFC’s refusal to disengage is especially troubling in light of the World Bank’s recent safeguards review, which seeks to weaken the bank’s environmental and social safeguards and to shift responsibility toward borrowing governments themselves. In October, 2014, over 100 civil society groups denounced the World Bank’s efforts, but no concrete response has been forthcoming.

Flex Crops and Consumer Campaigns

The rise of Corporacion Dinant as a leading palm oil producer in Central America is inseparable from its history as part of a long, violent and ongoing backlash against agrarian reform in Honduras. But it is also indicative of the ways in which a lucrative agro-industrial crop like palm oil, in a context of entrenched corruption and an authoritarian regime, lends itself to land grabbing and agrarian violence.

Anecdotal sources suggest that most of Dinant’s palm oil is exported to Mexico, where it is bought by Grupo Bimbo . . . largely responsible for a vast increase in Mexican consumption of palm oil in junk foods.

Palm oil production relies on cheap labor and large expanses of land to turn a profit. In order to be economically viable, nearly 10,000 acres of land are required to feed a single palm oil mill. But the economy of scale that palm oil demands to reap a profit is generally true across commodities – while palm oil is the particular villain in the case of Grupo Dinant, the problem is not the crop, but the agro-industrial model; decades ago with Standard Fruit, Honduras was the archetype of the banana republic; today with Dinant it’s an oil palm republic. Researchers have recently introduced the term “flex-crops” for crops that can be used for food, feed, fuel or industrial materia, and which lend themselves to land grabbing due to growing demand and the land area required to grow them.

Thanks to years of campaigning by environmental and human rights groups, the palm oil sector is undergoing what may be a sea-change: Palm oil producers and traders like Wilmar International, Golden Agri-Resources, and Unilever are adopting voluntary policies to improve their practices; consumer-facing companies including Colgate-Palmolive, General Mills, Kellogg’s and Procter & Gamble have strengthened their palm oil sourcing policies.

But the pressure to make these companies change comes from consumer companies who fear the brand damage that comes from sourcing palm oil that threatens orangutans and Sumatran tigers, and from financiers who have certain, albeit minimal, standards to uphold.

Anecdotal sources suggest that most of Dinant’s palm oil is exported to Mexico where it is bought by Grupo Bimbo – the commodity food conglomerate largely responsible for a vast increase in Mexican consumption of palm oil in junk foods. A campaign targeting Grupo Bimbo could gain some ground, but given the massive crisis of instability and conflict in Mexico, it seems unlikely. Dinant holds the license to use the Mazola trademark in Central America, but it is unclear whether the North American Mazola brand has any legal ties to Dinant that make it susceptible to consumer pressure.

Dinant is financed largely by a Honduran bank also backed by the IFC, and no US and EU financiers appear to hold shares in the company. As long as the IFC refuses to withdraw its financing and to push the company toward reforms that are unlikely to address the root problem, Dinant will maintain some credibility and will continue to produce some of the world’s bloodiest palm oil.

The watchdog of the International Finance Corporation (IFC), the World Bank’s private sector lending arm, has released a new report into the IFC’s lending to banks and equity funds, prompting civil society to renew calls for urgent reforms.

The watchdog, the Compliance Advisor Ombudsman (CAO), released the report on 16 October after monitoring the IFC’s response to its 2012 audit of IFC investments made using financial intermediaries (FIs). The 2012 audit was highly critical of IFC’s use of FIs, saying the IFC did “not have a systematic methodology for determining whether the implementation of a SEMS [Social and Environmental Management System] actually achieves the objective of doing no harm or the objective of improving E&S [environmental and social] outcomes at the sub-client level” and that “the end use of IFC funds by FI clients was opaque and as such that IFC knew little about the potential E&S impacts of its financial sector lending.” The results of the audit prompted IFC to develop an Action Plan to try to respond to the findings.

According to the CAO “IFC’s FI business continues to grow, with new commitments amounting to more than $10 billion in a disbursed portfolio of more than $14 billion in fiscal year (FY) 2014” – making this a significant and growing part of the World Bank Group’s activities. The report highlights areas where the IFC has made progress but warns that major concerns remain, particularly regarding the institution’s ability to ensure the outcomes of its investments through third parties and the lack of transparency around the majority of its FI portfolio. Reacting to the report, civil society calls for the IFC to take further steps to ensure its projects do no harm.

Welcome steps in the right direction

The new CAO report shows positive steps in a variety of areas, noting that the “quality and intensity of IFC’s E&S processes with regard to FIs have improved in recent years” and that some of the IFC’s actions “engage with many of the key findings from the FI Audit and have the potential to improve the quality of E&S outcomes in relation to IFC FI investments over time.” This represents an acknowledgment of some important problems highlighted in the initial audit report, also raised repeatedly by CSOs.

Specific elements, such as promoting market capacity in the E&S consultancy sector and increased engagement at the sub-client level on validation and supervision are welcome. IFC’s openness to a broader discussion about disclosure is also welcome, as steps toward greater disclosure are urgently needed. CAO’s investigation into IFC’s investment through Ficohsa, Honduras largest bank, found that “absent disclosure of information related to the end-use of funds from its FI investments… systems designed to ensure that IFC and its clients are accountable to project-affected people for delivery on their E&S commitments [are] effectively diluted”.

One of the most significant positive changes noted by the new report is the detailed and broad set of additions made to internal staff guidance notes on the Environmental and Social Review Procedures (ESRPs), which, if implemented, would place environmental and social risk on a more even footing with the assessment of financial risk.

Impact of billions of dollars of investments remains unknown

Despite these positive steps , the report finds that reforms have yet to address the main problem highlighted by the CAO’s original audit – that the IFC cannot determine the full impact of its investments through FIs and therefore cannot ensure they do no harm to the communities they are mandated to support. The CAO’s central finding “that the measurement of outcomes that correspond to IFC’s higher-level E&S commitments relevant to its FI business appears to be beyond the scope of the changes that IFC has proposed” is deeply problematic. Worryingly, despite progress made on staff guidance on ESRPs, the CAO also notes that the IFC has taken a step backwards by limiting the application of its protection policies to only certain loans. The CAO expressed concern that “this represents a narrowing of the application of the Performance Standards”.

The CAO also points out that the majority of sub-project investments financed by the IFC remain untransparent. This failure to disclose not only deprives communities of the knowledge of where the funding for projects is coming from, but also inhibits IFC accountability and prevents communities from seeking recourse to justice for harms done.

Nicolas Mombrial of Oxfam International said: “For high-risk investments of the World Bank Group to remain potentially unaccountable, untraceable and unable to guarantee they do not cause harm to communities is problematic, and will hinder the institutions from achieving the twin goals of eradicating extreme poverty and promoting shared prosperity. While we welcome the IFC’s steps taken to address this, the watchdog’s latest report shows that the reforms still have a way to go.”

Luiz Vieira of the Bretton Woods Project said: “While progress made by the IFC is certainly welcome, its persistent inability to determine the development impact of its investments through FIs remains deeply problematic. If despite its considerable resources and efforts the IFC has over the past two years been unable to develop a system that identifies the impact of its investments through FIs, what leads it to believe that it can quickly build the capacity of local FIs to do so in much more challenging and resource-constrained circumstances?”

María José Romero of Eurodad said: “Some concrete actions taken by the IFC are welcome steps in the right direction. However, much more needs to be done to address all the problems highlighted in the initial audit report. CSOs have been calling on the IFC to rethink its strategy for IFC lending to the financial sector through a process that allows for independent input, participatory consultation with affected communities, and broader stakeholder engagement.”

Given the persistence and gravity of concerns raised by the CAO’s report, and the lack of a “systematic approach” to assess whether its investments have a positive impact and do no harm to the communities it is mandated to support, we urge shareholders to recommend:

that the IFC undertakes fewer investments in the financial market sector, and dedicates more resources to ensure their positive outcome

that the World Bank Group develop a new group-level strategy for investments in the financial sector to fundamentally rethink the nature, purpose, modalities and limits of these investments

In July, the International Financial Corporation’s (IFC, the World Bank’s private sector arm) executive vice president Jin-Yong Cai asserted in a World Bank blog that the “extraordinary” progress made during the past two decades in poverty reduction requires that similar results be achieved in “the world’s most difficult corners.” This is in line with the World Bank Group’s new approach to fragile and conflict-affected states (FCS, see BulletinDec 2013).

Cai expressed confidence in the IFC’s ability to deal with the risks associated with these environments and to quickly rectify mistakes. He used the IFC’s 2009 investment in Dinant, a palm oil company with alleged links to murders and other human rights abuses in Honduras (see ObserverWinter 2014), to show that the IFC now recognises that it must consider a variety of risks such as “political instability and the prospect of conflict and violence over land rights.” He committed the IFC to measuring its success by “the development impact of projects – not by the dollar volume of investments.” This commitment follows a February World Bank Group staff survey which revealed that less than half of staff consider development their priority.

A December 2013 Compliance Advisor Ombudsman (CAO, the IFC’s accountability mechanism) audit on Dinant criticised the IFC’s incentive structure, noting that identified failures arose, in part, from staff incentives “to overlook, fail to articulate, or even conceal potential environmental, social and conflict risk”, and that staff felt pressured to “get money out the door” and were discouraged from “making waves” (see ObserverWinter 2014).

Cai’s remarks indicate a continued unwillingness to acknowledge that Dinant and other well-documented cases such as Tata Mundra (see ObserverSummer 2014), reflect structural problems at the IFC. Concerns have also been raised about the lack of accountability in the IFC’s investments in financial intermediaries (FIs), such as the Honduran bank Ficohsa (see Bulletin Sept 2014). Civil society organisations (CSOs) have repeatedly attempted to engage with the IFC on the need for systemic changes in IFC investments, including through four letters specific to Dinant, co-signed by over 50 local and international organisations.

Cai did admit that “highly charged” environments, such as Honduras, require a different approach and that investment decisions contrary to the IFC’s vision to ‘do no harm’ cannot be justified. His admission is particularly significant given his call for the IFC to “ramp up” its work in FCS.

The World Bank’s Independent Evaluation Group’s (IEG) 2013 report on assistance to low-income FCS noted that World Bank Group country assistance strategies “have lacked tailoring to fragility and conflict drivers and realism, and do not currently have contingencies based on political economy and conflict risks” and that “IFC performance incentives are not well aligned with supporting its strategy of increasing engagement in FCS” (see Bulletin Dec 2013). While the IFC has made some efforts to adapt its programming in FCS, such as through its pilot Conflict Affected States in Africa project, the case of Burma, also known as Myanmar, suggests that the IFC’s approach remains problematic.

Burma’s fragile environment

The World Bank has recently stepped up its activities in Burma, pledging $2 billion to the country in January (see Bulletin Feb 2014). In late June, a group of 23 Burmese CSOs sent a letter to the executive directors of the World Bank Group demanding that environment and social safeguards are in place to ensure that “investment through Small and Medium Enterprises (SMEs) will not involve illegal land acquisition, violate core labour standards, avoid the basic occupational health and safety standards, and violate the IFC investment exclusion list.” In May, the NGO US Campaign for Burma criticised the IFC’s contentious $30 million investment in Yoma Bank, as the banks’s designation as a financial intermediary would exempt it from due diligence standards and safeguards. The IFC’s resident representative justified the exemption by stating that “SME [lending] is considered to have very little social and environmental impact.” While the majority of the country’s population lives in rural areas and 70 per cent rely on agriculture for livelihoods, three of the IFC’s five investments in Burma involve the construction of hotels, which have been criticised for their dubious developmental value (see ObserverAutumn 2014).

In addition to questioning the developmental value of IFC financing decisions, CSOs have raised concerns about the potential impact of World Bank Group support on the country’s fragile peace process. Global NGO the International Crisis Group noted in February that “[t]he peace process with ethnic armed groups is in a delicate phase, with all sides engaged in a concerted effort to bridge gaps and build trust.”

In September, 39 Burmese organisations issued a joint submission to the Bank expressing concerns that its investments “could easily become focal points of public opposition and conflict if they aggravate the root causes of conflict – such as racial inequity, land and resource grab and forced displacement from traditional livelihood resources”. The organisations also criticised the “lack of systematic approach to analysing the risks of conflict that surround the projects” and the fact that loans were approved “despite legitimate civil society concerns and calls for meaningful consultations with concerned communities.”

Reflecting on the criteria for IFC investment decisions in Burma, its resident representative said companies had been selected because “these are companies with good growth potential … and can return the investment.”

Summary

An audit by the IFC’s accountability mechanism says the IFC failed to adequately address environmental and social risks when it approved a $70 million loan to Honduran bank Ficohsa. Ficohsa has lent millions to another IFC client palm oil company Dinant, alleged to have been involved in human rights abuses.

A mid-August audit released by the Compliance Advisor Ombudsman (CAO), the accountability mechanism of the International Finance Corporation (IFC), the Bank’s private sector arm has revealed that the IFC failed to adequately address environmental and social risks when it approved a $70 million loan to Ficohsa, Honduras’ largest bank, in 2011.

The CAO found that the IFC excluded serious allegations from its project documents about Ficohsa’s investment in palm oil producer Dinant, the bank’s third biggest client, which made this information “effectively secret and thus divorced from systems which are designed to ensure that IFC, and its clients are accountable to project affected people for delivery on their environmental and social commitments”. A January CAO audit report strongly criticised the IFC for its $30 million loan to Dinant, alleged to have been involved in human rights abuses, including the killing, kidnapping and forced eviction of farmers in the Bajo Aguán region (see ObserverWinter 2014).

The CAO audit questioned the IFC’s investment in financial intermediaries finding that “through its banking investments, [it has] an unanalysed and unquantified exposure to projects with potential significant adverse environmental and social impacts” (see BulletinMay 2014). The case of Ficohsa’s investment in Dinant, along with other controversial cases in India and Cambodia, has seen on-going challenges from civil society. CSOs have called on the IFC to learn lessons, and to rethink its strategy for investment in financial intermediaries to ensure environmental and social risks are addressed and investments lead to positive development outcomes. Over 60% of IFC funding is now channelled through financial intermediaries such as banks and private equity funds.

In response to the CAO audit the IFC defended its investment in Ficohsa and said it was implementing already-announced action plans, which included measures to review clients environmental and social management systems, and increase the number of client visits. The IFC said Ficohsa had recently committed to expand its staff and training on environmental and social risk management. The IFC did acknowledge there had been gaps in how it dealt with Ficohsa, including “a lack of due consideration of the potential environmental and social risks in the bank’s portfolio”.

Civil society organisations called on World Bank Group president Jim Kim to address these scandals and develop an action plan to ensure they do not happen again. In reference to Dinant Miriam Miranda, Coordinator of the Fraternal Organization of Black Hondurans (OFRANEH), said “we call on all multilateral financial institutions to stop providing millions of dollars in loans to corporations that have been accused nationally and internationally of responsibility for serious human rights violations.”

The Bretton Woods Project joins Oxfam in welcoming IFC executive vice president Cai’s commitment to ensuring that the IFC will measure its success “by the development impact of our projects — not by the dollar volume of our investments” and to change the institutional culture to that end.

It is encouraging that Cai is committed to aligning staff incentives with the IFC’s purpose as a development institution. Action to that end is certainly important given that according to a recent World Bank Group staff survey, only 30 per cent of IFC staff said they consider development as their main objective, and regard loan volume as more valued by the institution.

The December 2013 Compliance Advisor/ Ombudsman (CAO) report on the Dinant case clearly identifies the systemic nature of the challenges faced by the IFC, noting that the failures identified arose, in part, from staff incentives “to overlook, fail to articulate, or even conceal potential environmental, social and conflict risk”, and that staff felt pressured to “get money out the door” and discouraged from “making waves.” Therefore, while Cai’s sentiments are welcome it is notable that his stated commitment to change is framed by a continued unwillingness to acknowledge that the Dinant, Ficohsa, Tata Mundra, GKEL, Dragon and Wilmar cases are not the result of case-specific oversights but reflect institutional problems within the IFC.

CSOs have repeatedly attempted to engage with the IFC on this issue, including through four letters co-signed by over fifty local and international organisations. As outlined in the Bretton Woods Project’s ‘Follow the Money’ report , the findings of the IFC’s own internal audit found that “The result of [the] lack of systematic measurement tools is that IFC knows very little about potential environmental or social impacts of its [financial market] lending.” CSOs have therefore called for extensive consultations on the nature and impact of the IFC’s lending and for the joint development of specific mechanisms to address the problems identified by the CAO audit and CSOs. Specific action is required to address these systemic issues and to ensure that IFC lending results in positive developmental impact for the communities it is mandated to support. It is clear that Cai’s blog, while containing some positive statements, is not an adequate response to the important concerns raised on multiple occasions by CSO partners and substantiated by the CAO audit.

Cai’s admission that ‘highly charged’ environments such as Honduras require a more comprehensive and long-term assessment of project risks and consequences is particularly relevant, given his call for the IFC to ‘ramp up’ its work in areas suffering or transitioning from violent conflict. As Cai himself implies in his statement on the Dinant case, the complexities of the IFC’s operational environment cannot serve to justify decisions and projects that are contrary to the IFC’s vision to ‘do no harm.’ The extensive literature documenting the unintended negative consequences of the activities of the World Bank and the international community generally in these settings makes clear the inherent difficulties of working in conflict and post-conflict environments even for organisations that are dedicated to the task. Unfortunately, as Daniel Runde and Conor Savoy note in the 12 October 2012 US-based think thank Center for International and Strategic Studies, article, the “IFC remains largely culturally and institutionally unequipped to work in these areas. It may require entirely separate vehicles and personnel to staff these opportunities.” It is therefore imperative that before ‘ramping’ up its activities in complex conflict settings the IFC ensures that its oversight mechanisms, incentive structures and choice of financing vehicles are fit for purpose.

The inadequacy of Cai and the IFC’s response is clear when one considers the years of engagement by CSOs with the IFC’s own ombudsman on the issue, as briefly outlined below:

A CSO letter co-signed by 45 organisations called for immediate actions to address the shortcomings outlined by the CAO audit. The letter called for increased transparency and disclosure, accountability and changes to financing procedures. It also called on the IFC to revise its strategy for investment in the financial sector.

CSO letter with more than 20 signatories containing a technical briefing and specific recommendations, called for the revision of the proposed action plan to address the CAO’s audit findings before its implementation; and the launch of a review to develop a new ground-level strategy for investment in the financial sector in order to allow for a fundamental reconsideration of the nature, purpose, modalities and limits of these types of investments.

March 2014

CSO letter with more than 20 signatories containing a technical briefing and specific recommendations, called for the revision of the proposed action plan to address the CAO’s audit findings before its implementation; and the launch of a review to develop a new ground-level strategy for investment in the financial sector in order to allow for a fundamental reconsideration of the nature, purpose, modalities and limits of these types of investments.

April 2014

During April World Bank spring meetings CSOs made several requests, including disclosure of documents and the convening of regional meetings similar to those organised in Europe and the United States. Unfortunately, despite commitments made at the time, no action was forthcoming.

The IFC delivered a presentation on the lessons learned on the Dinant case. The Bretton Woods Project published an analysis of the presentation, widely considered to be inadequate.

June 2014

A CSO letter expressed concerns about the lessons learned presentation and its implications for the imminent decision on the Ficohsa loan. The letter underscored the need for a significant cultural shift within the IFC and requested that proposed changes be developed through an inclusive process with CSOs. The letter also stressed that something more substantive than a Powerpoint presentation, a blog or a public acknowledgement of a case-specific error is required.

To date, despite the repeated efforts outlined above, the IFC’s response has been limited to Cai’s blog.

This comment appeared on the World Bank’s Voices blog, responding to IFC executive vice president Cai’s post “Achieving impact in development requires us to venture into tough places” (Published on 12 August 2014)

WASHINGTON (Reuters) – The World Bank’s private sector arm did not pay enough attention to environmental and social risks when it lent to Honduras’ largest bank, Ficohsa, an internal bank watchdog said on Monday.

The finding marks the second time this year that the International Finance Corporation’s own ombudsman has chided it for flaws in Honduran investments.

The IFC acknowledged some problems with its initial investment in Ficohsa, which has also drawn fire from non-profit groups, but said it has since improved.

The IFC approved $70 million for Ficohsa in 2011 despite the bank’s risky operating environment and clients, including a palm oil company linked to multiple killings and drug trafficking, the IFC’s Office of the Compliance Advisor Ombudsman (CAO) said in the report.

In fact, the IFC had itself earlier approved a $30 million loan to the palm oil company, called Dinant, despite the firm’s troubling history, the CAO found in a previous report.

Honduras, one of Central America’s poorest countries, is embroiled in one of the thorniest land disputes in the region. Human rights groups have accused Dinant and its guards of human rights violations, including killings and forced evictions of peasants occupying disputed land.

The CAO said IFC had “at best, a superficial understanding of the environmental and social risks that are attached to Ficohsa’s client base,” even though some IFC employees who lent to Dinant knew about the risks and the wider problems in Honduras.

The IFC said the report correctly focused on past problems, but that it has since improved its practices, which the CAO acknowledged. It hired three full-time people to focus on environmental and social risks with Ficohsa, compared with one part-time employee before.

The IFC also said it now visits risky projects more often, better shares information among different parts of the organization, and by the end of the year plans to train all its employees in environmental and social risk management.

“When there are gaps in our approach, as was the case with our investments in Ficohsa, we remain committed to acting quickly, learning from our mistakes and making the necessary course corrections,” the IFC said in a letter.

The IFC aims to develop the private sector in poor countries to reduce poverty and boost economic growth.

But the organization’s growing loans to financial intermediaries – which now make up more than half its portfolio – have come under fire from non-profit groups, which say IFC lacks a good way of tracking their impact on development.

The CAO also said the IFC may put financial considerations first, generally focusing more on the credit risks of its portfolio rather than on environment and social risks.

It said its findings “raise concerns that IFC has, through its banking investments, an unanalyzed and unquantified exposure to projects with potential significant adverse environmental and social impacts.”

The International Finance Corporation (IFC, the World Bank’s private sector arm) published an early April briefing for the Bank’s executive board on “IFC’s environmental and social lessons learned”. The briefing was developed in response to the controversy over the IFC’s investment in Dinant, a palm oil company alleged to have links to murders and other human rights abuses in Honduras (see BulletinMay 2014, ObserverWinter 2014). It is the most comprehensive admission of fault by the IFC ever made public. The briefing follows numerous IFC failures and bad publicity over damages to communities and the environment (see ObserverSpring 2014, Update86), as well as criticisms of its lack of poverty focus (see Update84).

The briefing, in the form of a PowerPoint presentation rather than a document, argued that, despite the eight year old IFC performance standards, “clients and IFC are still learning, [the] implementation record [is] mixed”, and that “we are learning from tough cases, including Dinant, and mainstreaming lessons to improve process”. It claims that there is a “concerted effort to improve procedures, guidance for staff, clients and training”.

The document focusses on how the IFC is learning from the Compliance Advisor Ombudsman (CAO), the IFC’s independent accountability mechanism. It presented six categories where lessons were said to have been learned and IFC responses implemented: understanding the broader context, stakeholder engagement, land and water issues, supply chains, labour and financial intermediaries.

In conclusion, it highlighted many implementation challenges, focussing on external obstacles rather than the IFC’s own systems, including “weak client capacity combined with weak regulatory implementation”, “varying client commitment” and the “resource implications” of increased oversight. It states that “challenges will remain and results will not be perfect” but that the IFC “will report to the board (via CODE) more regularly regarding emerging problem projects”.

NGOs criticise “serious omissions”

Civil society organisations were on balance unimpressed with the IFC’s efforts. A June letter to the IFC and the Bank’s board, signed by 29 groups including Indonesian NGO Solidaritas Perempuan and Oxfam International, welcomed positive elements in the briefing, but argued “this exercise will not produce the changes needed to avoid future harm to communities and the environment from IFC investments. This concern arises from two specific issues: a number of serious omissions in the content of the lessons learned document; and a lack of clarity about the future process of how these lessons will be followed through, to implementation, as well as monitoring and evaluation.”

The letter argued that the lessons learned document fails to address institutional culture and incentives, the mis-categorisation of risk and the need to prioritise human rights, among other issues. The signatories found “a degree of institutional amnesia each time things go wrong”, and called for “a public commitment to a time bound plan for the lessons learned exercise”, which should include benchmarks to assess progress, consultation with communities and civil society organisations, proposals for sanctions and other means to hold staff accountable and a risk re-assessment of the current portfolio. Finally, the letter demanded proposals “to ensure that IFC only invests in projects and sub-projects with a genuine poverty reduction rationale based on local and national sustainable development priorities.”

In January, more than 70 international organisations called for the IFC to commission “an independent investigation of the underlying systemic reasons identified by the CAO for the repeated and serious failures to adhere to standards by IFC staff.” This April IFC briefing falls far short of that demand. An audit report into an IFC financial intermediary investment linked to the Dinant case is expected this summer. Recent reports have criticised the IFC’s investments in financial intermediaries for lacking evidence of a tangible pro-poor development impact.